The Australian Securities and Investments Commission (ASIC) announced last week that binary options trading in Australia will be banned starting on the 3rd of May 2021. The regulator indicated that its review of the binary options market in 2017 and 2019 showed that approximately 80% of traders lost money in binary options.
The regulator pointed out specific characteristics of binary options trading that may result in cumulative losses for clients, including:
- the ‘all or nothing’ payoff structure, where one of the two possible outcomes for a binary option contract is that the retail client will lose their entire investment amount;
- short contract duration (the average contract duration of binary options traded with one provider was less than six minutes); and
- negative expected returns (that is, the present value of the expected payoff for a binary option contract is lower than the initial investment).
ASIC estimates that Australian traders have lost an estimated $490M in 2018, while a previous formal warning from the regulator in 2019 looks to have curtailed trader losses to only $6.7M in 2019. The ban on binary options is set to last 18 months, but it is likely to be extended or become permanent following further review by the Australian regulatory authorities.